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The Impact of the 2011 Payroll Tax Cut on Working Americans

1/14/2011

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Less than one month after President Obama signed a payroll tax cut into law as part of the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010, millions of American workers are already seeing the impact of this tax cut in their paychecks.By reducing the payroll tax paid by employees from 6.2 percent to 4.2 percent, the payroll tax cut is already providing a boost to workers' paychecks and to the economy:

$110 Billion in Tax Relief [1]: The payroll tax cut is expected to provide $110 billion in tax relief to working Americans.

Tax Cuts for 159 Million Workers:As a result of the payroll tax cut, some 159 million working Americans are expected to receive larger paychecks this year than they would otherwise.

An Average Tax Cut of $695 Per Worker: The expected benefit received from the payroll tax cut is an average of $695 per worker.

Payroll Tax Cut Would Have No Impact on Social Security Solvency: Each worker's Social Security benefit will be calculated without regard to the tax reduction and the Social Security trust fund will be made whole by transfers from the General Fund. Social Security's Chief Actuary wrote that the projected level of the Social Security trust fund would be unaffected by the payroll tax cut.

Payroll Tax Cut Provides Significant Boost to Economy and Job Growth This Year: Independent economists – from the CBO to Mark Zandi to Nouriel Roubini – have estimated that a payroll tax cut could provide a significant, immediate boost to growth and jobs.

This tax cut is in addition to other job-creating provisions of the Act. These include expansions of the Child Tax Credit and Earned Income Tax Credit for working families, and the American Opportunity Tax Credit, which helps students and their families cover the cost of college tuition, extended unemployment insurance and business tax cuts. Together, independent analysts project that this package will result in the creation of 1.5 million or more additional jobs.

Experience of Three Hypothetical American Families[2]

Detroit, Michigan: A married couple – an automotive mechanic earning $38,300 and a preschool teacher earning $29,800 – would receive $1,362 in tax relief from the payroll tax cut.

About 5.1 million working Americans in Michigan will receive a larger paycheck under the package - $3.4 billion in total (see table 1 below).

Wilmington, Ohio: A married couple – a delivery truck driver earning $28,000 and a nursing aide earning $24,500 – would receive $1,050 in tax relief from the payroll tax cut.

About 5.7 million working Americans in Ohio will receive a larger paycheck under the package - $3.6 billion in total (see table 1 below).

Fort Lauderdale, Florida: A single mother working as a hairdresser earning $24,500 would receive $490 in tax relief from the payroll tax cut.

About 9 million working Americans in Florida will receive a larger paycheck under the package - $5.7 billion in total (see table 1 below).

Table 1

State-by-State Estimates of the Number of People Who Benefit and Amount of Tax Relief Received in 2011 from the Payroll Tax Holiday in the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010

Number of People (millions)

Amount ($, billions)

Number of People (millions)

Amount ($, billions)

Alabama

2.3

1.4

New Mexico

0.9

0.6

Alaska

0.4

0.3

New York

10.1

7.9

Arizona

2.9

2.0

North Carolina

4.7

3.1

Arkansas

1.4

0.8

North Dakota

0.4

0.2

California

16.7

12.8

Ohio

5.7

3.6

Colorado

2.5

1.7

Oklahoma

1.9

1.1

Connecticut

2.0

1.6

Oregon

1.9

1.3

Delaware

0.5

0.4

Pennsylvania

6.7

4.8

Florida

9.0

5.7

Rhode Island

0.6

0.4

Georgia

4.6

3.1

South Carolina

2.2

1.4

Hawaii

0.7

0.5

South Dakota

0.5

0.3

Idaho

0.8

0.5

Tennessee

3.2

2.0

Illinois

6.5

4.7

Texas

11.4

7.8

Indiana

3.6

2.3

Utah

1.3

0.9

Iowa

1.7

1.1

Vermont

0.4

0.3

Kansas

1.6

1.0

Virginia

4.3

3.3

Kentucky

2.1

1.3

Washington

3.5

2.7

Louisiana

2.1

1.3

West Virginia

0.9

0.5

Maine

0.8

0.4

Wisconsin

3.2

2.2

Maryland

3.1

2.6

Wyoming

0.3

0.2

Massachusetts

3.4

2.8

DC

0.4

0.3

Michigan

5.1

3.4

Other Areas

4.2

1.9

Minnesota

3.1

2.3

Mississippi

1.4

0.8

United States

158.6

110.2

Missouri

3.1

1.9

Montana

0.6

0.3

Nebraska

1.0

0.7

Nevada

1.2

0.8

New Hampshire

0.8

0.6

New Jersey

4.7

4.1

1-13-2011

The figures in the table are based on tabulations from the 2008 Social Security Administration, Continuous Work History Sample, 1 percent sample; unpublished estimates from the Office of the Chief Actuary, Social Security Administration; and the Office of Tax Analysis, Department of the Treasury.

State designation is based on employee residence.

[1]The figures are based on tabulations from the 2008 Social Security Administration, Continuous Work History Sample, 1 percent sample; unpublished estimates from the Office of the Chief Actuary, Social Security Administration; and the Office of Tax Analysis, Department of the Treasury.

[2] The income levels represent the state median salary for each occupation, as estimated in the May 2009 Occupational Employment Statistics (OES) Survey by the Bureau of Labor Statistics and adjusted by the forecast of taxable Social Security earnings from unpublished estimates by the Office of the Chief Actuary, Social Security Administration for the FY2012 Budget of the U.S. Government.

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